Cargo Carriers: Between ‘Carpet Sellers’ and ‘Cargo Stars’

01. December 2014

There is no such thing as a ‘one size fits all’ approach to a successful air cargo operation, says Transport Economist Dr. Wouter Dewulf of the University of Antwerp as a conclusion of
his research project for his Ph.D. dissertation. In fact, there are as many as seven.

Prof. Dr. Wouter Dewulf of the University of Antwerp / source: ms

In the past, air cargo was traditionally considered as a by-product of passenger air transport. Over the last decade, however, a defined strategy for air cargo has gained a key position in the
overall strategy of most combination carriers, says Dr. Dewulf. “The global air cargo industry is nowadays a mature industry with over 60 billion USD in direct revenues. My Ph.D. research aimed
at gaining an enhanced insight into the strategies of air cargo carriers, with the exclusion of integrators.”

Only a few carriers play the cargo biz in a professional manner
Through his research, supervised by Transport Economist Prof. Dr. Eddy Van de Voorde of the department of Transport and Regional Economics, Dr. Dewulf has identified seven clusters of potential
strategy models which airlines follow according to their size and focus on developing a successful cargo operation. Based on 2010 figures, scientific research has produced a typology of the
above-mentioned cluster groups demonstrating that different strategies can make or break a cargo operation. “One underlying conclusion is that few airline companies are playing the game as it
should be,” says Dr Dewulf.

Triangular services
He has labelled smaller companies focussing on niche products or markets ‘Carpet Sellers’, as their products are rather capacity than market driven. Among these companies rank Brussels Airlines,
Ethiopian Airlines and most freighter operators, he says. “Freighters are very difficult to run from the point of view of cost structure. Their cost is the total average cost per kilo,
whereas combination carriers are passenger driven and have a marginal cost structure for air freight. Passenger aircraft will fly anyway, even if there is no cargo. If, on the contrary there is
no cargo, a freighter won’t fly. That’s where the triangular services come in. Personally, I don’t believe in large-scale only carriers operations, even if I do believe in niche markets and the
potential of freighter operations in a combination carrier’s network to balance loads and routes.”
Companies like Korean Air and Qatar Airways are ‘Basic Cargo Operators’, mainly focussing on the transport of large cargo volumes in a fast and reliable way through an extensive network.

The third group is named ‘Strong Regionals’. Supported by a medium-sized fleet they serve as strong regional network from a smaller passenger or cargo hub. This network connects to a long
distance network, fed by short and medium-haul distances. According to his study Swiss, Cargolux and Jet Airways are ‘members’ of this specific group.

‘Huge Americans’
Wouter Dewulf holds that the strategy model of two very large, dominant and globally operating companies such as American Airlines and Delta Airlines justifies a fourth and separate cluster -
‘Huge Americans’. “They have an impressive wide body fleet, carrying a considerable amount of freight on their international routes. This is quite important, given the fact that the bulk of U.S.
domestic freight is carried by the integrators.”
Other globally operating major groups with a large wide body fleet offering extensive cargo capacity are called the ‘Large Passenger Wide-Body Operators’. Among them are British Airways and China
Southern.

KLM beats Air France
KLM – as Dr. Dewulf’s figures date from the days before the integration of the cargo operations of KLM and Air France – and Singapore Airlines are part of the cluster ‘Premium Cargo Operators’.
“Historically, KLM and its subsidiary Martinair have always had a larger focus on air cargo. As for pricing, KLM had a better policy than Air France. Thanks to a wider product differentiation and
a better capacity and revenue management, KLM achieved better results.”

LH and EK are leading the pack
Last but not least there is the ‘Cargo Stars’ cluster, featuring Lufthansa and Emirates Airlines. Both are, very large passenger and cargo operators. Their cargo divisions have put separate and
differentiated cargo products into the market. These vary considerably from their passenger business, for which they market the belly capacity. Dewulf: “Thanks to this separate, professional
approach of cargo transport, they demonstrate that their cargo strategy is a crucial element of the overall strategy of the company.

Keep the forwarder satisfied
In his dissertation “Analysis of the Strategies of Air Cargo Carriers, from Carpet Sellers to Cargo Stars!”, Dr. Dewulf has made up a list of ‘winning strategies’. “Most important is product
differentiation and professional capacity management linked with a revenue management, even if you have to sell the last tonnes for peanuts. There’s also the size of the airline and the size of
its cargo hub. Very important is trying to be best in class in unit cost for the transport of cargo. You should also go for a balanced fleet mix of wide-body passenger aircraft and freighters.”

“The ‘Cargo Stars’ strategy is the most successful model for companies with a turnover of some 20 billion USD. For a turnover of 10 billion USD, I would suggest the ‘Premium Cargo Operator’
model. Under 5 billion U.S. dollars ‘Strong Regionals’ seems the better strategy.”

Cargo divisions should resort to the same strategy as their passenger counterparts, Dr Dewulf thinks: “Evaluate routes and seasons. In that respect I think that Brussels Airlines should really
consider marketing Southbound Africa by itself. The decision to hand this route over to their GSA was taken when they only had three wide-bodies. Now they operate eight A330s.”

Within this cargo strategy typology, there is certainly some room left for freighters and niche market focussed cargo-only operations,” he maintains. “The integrators will always need freighter
aircraft. Regarding the other cargo operators I would suggest flying to large cargo hubs that have a prime location and smooth accessibility.”

By way of conclusion, Dr Dewulf suggests to go where the freight forwarders are. “Over the last few years they have evolved into a sort of ‘virtual integrators’. Through consolidation and further
professionalization, they are moving away from the airline companies. They are right when they complain that the working processes of the airlines – I mean the ‘show’ before take-off and after
landing – are still those of 20 to 30 years ago. After all, the ocean lining companies have successfully managed to overcome the same problem already years ago.”

Marcel Schoeters in Brussels

For more information, to obtain the data or to order a copy of the Ph.D. dissertation “Analysis of the Strategies of Air Cargo Carriers, from Carpet Sellers to Cargo Stars!”, contact Dr. Dewulf
on wouter.dewulf@uantwerpen.be.